Richard Levick, Esq., is Chairman and CEO of LEVICK, which provides strategic communications counsel on the highest-profile public affairs and business matters globally. Mr. Levick has been named four times as one of “The 100 Most Influential People in the Boardroom.” He is the co-author of four books and a regular commentator on television and LEVICKDaily.com.
Follow Richard Levick on Twitter and circle him on Google+, where he comments daily on public affairs and global business communications issues.

With last week’s announcement that the American Apparel board has ousted Charney because he refused to accept a reduced “creative” role at the company, it seems he failed in an area that Zuckerberg is beginning to master (albeit slowly). When a career evolves from the dorm room to the boardroom, behavior must as well – because acts once characterized as “eccentric” and “irreverent” when times are good can be quickly redefined as “troubling” and “problematic” when they are not.

In Charney’s case, the “troubling” behaviors alleged by the board – and several former employees who have or are currently suing Charney – include sexual harassment and misuse of funds. There is rampant innuendo about his “playboy” lifestyle, which is rumored to include a Hefner-esque mansion. He is said to have paraded around the factory floor in his underwear. He has been accused of assaulting a store manager and hurling racial and ethnic slurs at staffers. One former employee has even alleged that Charney kept her as his personal “sex slave” for a period of eight months.

When the company was profitable, or when it still seemed plausible that Charney could turn it around after years of heavy losses, these allegations were brushed aside, settled, or flat out denied. Now that the stock has plunged from $15 a share in 2007 to $2 last summer to $0.47 by April 2014, the board has far less patience. With Charney’s reputation overshadowing the company brand and business partners starting to run for cover, the board finally initiated an internal investigation in March 2014. Based on the findings, it delivered Charney its ultimatum last week: take a back seat to new leadership or hit the road – sort of, with a nice four year severance and consulting agreement.

Now, we all know that sex sells in the fashion industry. And anyone who has seen The Devil Wears PradaPrada understands that this world has more than its share of abrasive, somewhat insensitive characters. These factors may explain why the board allowed Charney such a long leash for such a long time. But, if proven true, the allegations against Charney go far beyond the relatively minor gaffes we’ve seen from competitors such as Abercrombie’s Mike Jeffries, Lululemon’s Chip Wilson, and others.

As such, they brought about a Bobby Knight moment of sorts when the numbers no longer justified tolerance of Charney’s behavior. The board effectively said ‘we could put up with all that yelling, screaming, and chair throwing when you were winning championships. Now, not so much.’

Staying true to form, Charney is now predictably fighting back. A letter to the board written by newly-hired counsel Patricia Glaser states that American Apparel “violated its legal and contractual obligations to Mr. Charney in numerous respects,” and that he has suffered “substantial professional, reputational and financial injuries” as a result. The letter’s points notwithstanding, Charney’s selection of Glaser as his counsel and spokesperson is about the only thing he has going for him at this point. She is one of the best in the business and a woman to boot, which lends some – but not much – credibility to his assertions that the allegations – of sexual harassment, at least – are overblown.

Of course, calculating “reputational damage” for a man who shows up to the office only in his underwear, sends out videos of himself naked, and uses his company as an apparent dating service will be entertaining to watch, should damages ever be awarded.

How you act on the way up has a lot to do with how you’re treated on the way down – and Charney’s actions during his ascendency have left him with few allies to rely upon during the descent. No third parties are stepping up to defend his good name, articulate how important his “vision” is to the company’s future, or even echo positive messages about, for example, Charney’s commitment to insourcing labor (though even that too has been called into question).

Worst of all for Charney, the board has taken control of the conversation by leaking details of the investigation to the media. That has forced Charney to swim upstream against the already dominant perception – a fact evident in the defensive and inconsistent nature of Charney’s pubic responses to date. One minute, his team is complaining that the alleged acts took place years ago. In the next breath, it is asserting that the allegations are “baseless.” Which is it? Not a strong start when leadership of the company you founded is on the line.

Then, there is the board itself, which might be well positioned to win the battle but could end up losing the war anyway. As noted above, it has shaped the overarching narrative at the outset by initiating the investigation in the first place (carried about by the reputable law firm Jones Day), taking decisive action, and backing up its move via what seem to be carefully timed and orchestrated leaks. But all that said, important questions still remain.

Why did it take so long for the board to act (cue the scene from Casablanca about being “shocked, shocked that there is gambling going on in here.”)? What are its plans to compete in a maturing marketplace that may be squeezing the company out of existence? How does it plan to regain lost market share without a visionary leader at the helm? How will it manage its relationship with investors when it just fired the company’s largest shareholder?

If the stories about him are true, Dov Charney didn’t just own the company, he acted like he did. As long as American Apparel was profitable, his board didn’t seem to care. Now, both are hanging on by the slimmest of threads because they failed to understand a key tenet of American commerce:

When you’re still on campus, it may be OK to go to work in your underwear. Once you graduate, it’s time to grow up.

Post Your Comment

Post Your Reply

Forbes writers have the ability to call out member comments they find particularly interesting. Called-out comments are highlighted across the Forbes network. You'll be notified if your comment is called out.